More IFAs recommending Isas for retirement planning
More advisers are suggesting savers use individual savings accounts (Isas) alongside pensions to prepare for retirement, according to new research from Met Life.
Its research amongst specialist retirement advisers revealed that 59% have amended their recommendations to incorporate Isas which enable clients to build savings that will not be liable to tax when they cash them in. This is in contrast to pensions, which offer tax-relief on contributions but, beyond the first 25%, are subject to income tax when you make a withdrawal.
The changes come following the introduction of new pension freedoms and the forthcoming reduction of the lifetime allowance, which will see the maximum savers are able to invest in pensions fall from £1.25 million to £1 million from April. Find out if you will be caught out by the reduced lifetime allowance here.
However, while Isas can provide a valuable pot of tax- free cash at retirement, the research also found that one in six adviser clients was concerned that they would be tempted to spend their savings before they retire, while 28% worry that the government will change the Isa rules.
Commenting on the findings: Simon Massey, wealth management director, MetLife UK says: “The £20 billion increase in Isa investments in the last tax year highlights how advisers are right to recognise their importance in retirement planning, which will only grow once the new lifetime allowance comes into effect.”
Invidivual Savings Accounts were introduced on 6 April 1999 to replace personal equity plans (PEPs) and tax-exempt special savings accounts (TESSAs) with one plan that covered both stockmarket and savings products, the returns from which are tax-exempt. The ISA is not in itself an investment product. Rather, it’s a tax-free “wrapper” in which you place investments and savings up to a specified annual allowance where the returns (capital growth, dividends, interest) are tax-exempt (you don’t have to declare ISAs and their contents on your tax return). However, any dividends are taxed within the investment, and that can’t be reclaimed.